OPEC at crossroads: to cut quotas or not to cut?

A decision not to reduce the quotas for extraction and export supplies of crude oil is most likely to be taken on Wednesday, March 31, at the regular, 130th conference of the Ministers of Oil and Energy of 11 states - members of the Organization of Petroleum Exporting Countries (OPEC).

As a high-placed source in the OPEC headquarters in Vienna said on Monday, "the Ministers of the member countries of the world oil cartel are likely to temporarily put off fulfillment of the decision of the Algiers conference of February 10 to reduce the oil quotas by one million barrels a day from April 1 to a later date." According to him, currently there is no common view on this issue within the OPEC because the UAE and Qatar would like not to reduce the extraction quotas, whereas Algeria and Venezuela are demanding immediate implementation of the Algiers conference's decisions. Saudi Arabia, an OPEC "heavyweight", is throwing more than 8.5 million barrels of oil a day onto the market and, meanwhile, keeps silent and intends to state its stand only in the course of the OPEC highest forum in Vienna.

Indonesia's representative to the OPEC Board of Governors Maizar Rachman believes that "the raw-material market does not suffer from a deficit of oil supplies, and for this reason at the current stage it would be possible to implement the decisions of the Algiers conference." The quotas for oil extraction are voluntary limitations, which the cartel members assume proportionately to the output of oil in each country. But the efficiency of this mechanism for regulating the oil prices has been recently provoking doubts. The many-year dynamics of supply of oil shows that it depends not so much on the quoting of oil extraction by the OPEC members as on non-market factors. In effect, all the members of the organization suffer from internal political instability (Venezuela and Nigeria are the most graphic illustration of this), or are situated in unstable regions (the Middle East!) where military conflicts break out from time to time. This greatly undermines the cartel's ability to consciously and purposefully regulate the world oil prices.

The fully open taps of the export pipelines have psychological impact on the prices only for a moment, while a reduction of output becomes immediately compensated for by the so-called independent producers, which do not form part of OPEC (Russia, Norway, Mexico). That is why there are good grounds to suppose that the role of OPEC in the regulation of the oil prices is not so great as it was believed up-till now, though these countries account for roughly 30 million out of the 76-77 million barrels of the world's daily demand for oil.